Why can't you stop watching Netflix?

By Todd Leopold, CNN

Updated 9:36 AM ET, Tue July 22, 2014

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Photos:A brief history of Netflix

A brief history of Netflix – Reed Hastings, pictured, and Marc Rudolph, two software engineers, founded Netflix in 1997 to use the Internet to rent movies on DVD, then a new format. (An old, discredited story claims that Hastings had the idea after Blockbuster charged him a $40 late fee for "Apollo 13.") Rudolph left in 2002.

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Photos:A brief history of Netflix

A brief history of Netflix – In 1999, Netflix adopts a monthly subscription model: unlimited rentals for a single monthly rate.

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Photos:A brief history of Netflix

A brief history of Netflix – In 2006, the company announced the $1 million "Netflix Prize," encouraging people to come up with a better algorithm than its current recommendation system, which was gummed up by divisive movies such as "Napoleon Dynamite." Three years later, the prize is claimed by a seven-man team, though Netflix never used their idea.

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Photos:A brief history of Netflix

A brief history of Netflix – Netflix moved into streaming in 2007. By now subscriptions were increasing by leaps and bounds: Three years later, the service had topped 20 million subscribers.

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Photos:A brief history of Netflix

A brief history of Netflix – The company announces a move into original programming with "House of Cards," a series about Washington intrigue produced by David Fincher and Kevin Spacey. It premiered in 2013.

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Photos:A brief history of Netflix

A brief history of Netflix – In an attempt to split its DVD and streaming businesses, Netflix created Qwikster for DVD distribution in 2011. Within a month, consumer protests prompted the company to drop the idea.

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Photos:A brief history of Netflix

A brief history of Netflix – "House of Cards" isn't the first original show to debut on the service. "Lilyhammer," starring Steven Van Zandt as an American gangster in Norway, premiered February 6, 2012, with all eight episodes available for streaming right away -- a distribution arrangement the company does for many of its series.

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Photos:A brief history of Netflix

A brief history of Netflix – The first season of "House of Cards" premiered February 1, 2013. Netflix had invested $100 million for two 13-episode seasons -- a huge risk -- but the first season eventually earned eight Emmy nominations and greatly increased Netflix's visibility. The Emmy nods are the first for an online-only Web show. The second season premiered February 14, 2014, and earned 13 Emmy nominations.

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Photos:A brief history of Netflix

A brief history of Netflix – Though "Hemlock Grove," which premiered April 19, 2013, hasn't gotten the press Netflix's other series have, the Eli Roth-produced horror show has enough of a following that it was renewed for a second season, which premiered in early July 2014.

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Photos:A brief history of Netflix

A brief history of Netflix – Netflix also broadcast a fourth season of "Arrested Development," the Fox series that went off the air in 2006. The Netflix season, which premiered May 26, 2013, is 15 episodes and -- if anything -- even more intricate than the original network run.

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Photos:A brief history of Netflix

A brief history of Netflix – "Orange Is the New Black," about the inmates of a women's prison, premiered July 11, 2013. Netflix said in November that it was the service's most-watched original series. The first season received 12 Emmy nominations. The second season premiered June 6, 2014.

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Photos:A brief history of Netflix

A brief history of Netflix – "Derek," a UK series starring Ricky Gervais, was picked up by Netflix and premiered on September 12, 2013, in the United States.

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Photos:A brief history of Netflix

A brief history of Netflix – Siblings Andy and Lana Wachowski, who created the "Matrix" movie trilogy, are at work on a Netflix series called "Sense8."

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A brief history of Netflix – The company must be doing something right. As of the middle of 2014, Netflix has more than 50 million subscribers. Its stock price is well over $400 a share, having increased tenfold since 2009.

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Story highlights

Netflix has plenty of buzz

Service picked up 31 Emmy nominations

Netflix caters to instant-gratification consumerism

Can other media learn from Netflix's success?

Netflix knows you well.

The streaming and DVD service knows what you've rented and streamed and how long it took you to watch. It knows what genres you like and what performers you prefer. Who knows? It may even have an idea whether you prefer your popcorn lightly salted or slathered with butter. (Don't want the rest of the world to know? It's also testing a privacy mode.)

It has taken this knowledge and managed to produce a few hits of its own -- not just with audiences, but also within the industry.

Netflix is having a moment. Its series, such as "House of Cards" and "Orange Is the New Black," recently picked up 31 Emmy nominations. Wall Street approves of the strategy, having bid up Netflix's share price 10-fold in the last five years.

And the audience? Netflix just announced it has cracked 50 million subscribers, more than double the number it had just four years ago.

It has taken some old showbiz lessons -- trust the creatives, budget them appropriately -- and added some new twists: Binge-watching. Deep data mining. Exploiting the catalog as if there were nowhere else to go. (From the comments on this Mashable piece, you'd think Netflix owned the only copy of "Big Daddy" and had it transferred to flammable nitrate stock.)

Tiffany "Pennsatucky" Doggett (Taryn Manning) is a meth-addicted born-again Christian who is not above attacking fellow inmates, including Piper. In season two she becomes less devout.

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Photos:'Orange Is the New Black' cast

Aleida Diaz (Elizabeth Rodriguez) is Daya's mother. Doing time for drug charges, she appears to not love her daughter initially but is later revealed to be protective of her.

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Photos:'Orange Is the New Black' cast

Jason Biggs plays Larry Bloom, a journalist and Chapman's (formerly) doting fiancé. He stood by her in season one even when the more sordid details of her past were revealed but becomes increasingly disenchanted and eventually exploits her prison sentence to bolster his career.

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Photos:'Orange Is the New Black' cast

Pablo Schreiber plays corrupt prison guard George Mendez, better known as Pornstache (one guess why). He breaks all the rules, from smuggling drugs into the prison to having sex with inmates. In season one, he is suspended without pay for his actions.

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Photos:'Orange Is the New Black' cast

Lorraine Toussaint joined the cast in season two as Yvonne "Vee" Parker, shown here with Gloria. Former drug runner Vee clashes with the other inmates, including Red.

"Every kind of flavor of (traditional TV) should go out the window, as we have conditioned the universe to expect instant gratification by the Internet," he said.

Netflix's plan is multifaceted. It has its original series, which give it cachet. But a majority of Netflix watching is of old TV series, as if the service is an old UHF channel offering reruns of classic shows. And then there's the binge-watching, something anyone who's ever sat down for a "Law & Order" marathon is quite familiar with.

Finally, there's the library: tens of thousands of titles at your fingertips.

Netflix is on target with its focus on "instant gratification," said Jim McKairnes, a former CBS executive who's now the Verizon Chair in Global Broadband and Telecommunications at Temple University. Today's audiences -- particularly younger viewers -- want what they want, when they want it. They have no concept of "sitting down to watch TV," he said. "That's a concept foreign to them. It's like trying to tell them what a phone booth is."

There's also something else: Money.

Broadcast and most cable networks are dependent on advertiser dollars. Netflix takes cash directly from subscribers. Comparing Netflix with traditional TV networks is like comparing "apples and furniture," McKairnes said.

2. Dig your data.

It's worth noting that Reed Hastings, who co-founded Netflix with Marc Randolph in 1997, isn't from TV or movies. He's a techie, having made his first fortune with a software development company.

So a number of Netflix's moves have been more striking in terms of technology than pop culture storytelling. Netflix was built for the Internet -- not for brick-and-mortar strip malls, like Blockbuster, its early competitor -- and embraced streaming as soon as broadband became widespread. Moreover, in 2005 it sponsored a $1 million "Netflix Prize" to go to the software designer who could best improve Netflix's algorithm -- and the improvements weren't even used.

"House of Cards," its first major original success, was built as much on data as it was content. "Because we have a direct relationship with consumers, we know what people like to watch and that helps us understand how big the interest is going to be for a given show," Netflix's Jonathan Friedland told The New York Times.

3. Know your customers.

Ah, the customer. For all the TV and movies we consume, it's surprising sometimes how little attention is paid to our desires. Shows are canceled or moved, quality is inconsistent and viewers are subjected to minor annoyances.

Take one example: NBC's "The Blacklist." Next season, McKairnes observed, NBC is going to split its season in two. The show will debut in fall, take a break for the holidays and the Super Bowl, then return on a new night. The strategy runs the risk of alienating the show's fan base, he said.

"I don't know if the Netflixes of the world would do that in terms of pissing off their customers," McKairnes said.

"They have been very insight-oriented -- they've listened very carefully to the audience, been able to project audience's behaviors and they've developed services and a product operating around that," he said.

That builds goodwill, he added.

"Audiences are far more willing to forgive brands that behave authentically and whose intentions are good," said Sehdev. "(Netflix is) such a human, intimate, audience-centric brand. Even if they fail, that will be seen as being coherent with its brand image."

"Netflix was the only company that said, 'We believe in you. We've run our data, and it tells us our audience would watch this series,' " he said.

Jenji Kohan, the creator of "Orange Is the New Black," agreed. Her show was turned down by both Showtime and HBO before Netflix grabbed it. The service "pretty much bought it in the room," Kohan told The New York Times.

It's an old lesson, but one that has to be consistently relearned, said McKairnes.

"HBO started it in the late '90s -- that's when broadcast network television was looking over its shoulder -- and AMC set the bar, and now Netflix is raising it," he said. The common bond: trusting creative types and letting them do their thing.

5. Get cool.

"Chelsea Lately" host and comic author Chelsea Handler summed up a world of admiration about joining Netflix, where she's scheduled to host a variety of programs, including a new talk show.

Chelsea Handler's Netflix deal includes specials and a talk show.

"I'm more excited than I've been in awhile, and the team at Netflix is the most forward thinking, alert group I've sat down with in ages," she said in a statement last month.

The Emmy nominations -- which also included nods for Ricky Gervais' "Derek" -- only added to the buzz around the service.

Netflix's shows are built around storytelling, and Spacey -- reiterating a point made by the late director David Lean -- noted that the movie studios' blockbuster mentality runs counter to storytelling. The movie business needs to be more flexible, said Spacey, so it can have both.

Could Netflix have an effect on the movie business?

Not right now, said University of Nebraska film professor Wheeler Winston Dixon. Their business is less about storytelling and more about spectacle.

"The main thing studios have to do is to get people off the couch and into the theaters, and the thing that's going to do that is a huge blockbuster spectacle which offers IMAX, 3-D, blasting sound," he said.

Still, with this summer's dismal domestic box office -- based on play-it-safe big-budget tentpoles and sequels filled with computer graphics -- it's worth watching if change is in the wind.

6. Watch -- out.

If all the praise Netflix has earned sounds familiar, it's because we've seen this show before. The golden child is placed on a pedestal by the media and then knocked to the ground, or simply ignored.

Netflix has been called the "new HBO," but the old HBO was just as golden as Netflix in the early 2000s, before shows like "John from Cincinnati" came along. (It has since recovered much of its luster.) AMC was magical when "Mad Men" and "Breaking Bad" were peaking, less so after "Cold Winter Sun" and "The Killing."

Even Pixar, sainted Pixar, has dropped a notch or two from the days before it started revving the wanly reviewed "Cars." (In Pixar's defense, "Cars" has been a merchandising bonanza.)

Netflix has had its share of missteps. There was the Qwikster debacle, in which an attempt at a DVD-only service failed. (To its credit, the company quickly apologized.) It's currently attracting negative notice for stopping Saturday DVD mailings, because not everyone has signed up for streaming.

Its series "Lilyhammer" and "Hemlock Grove," though both renewed, haven't received a great deal of attention. Another original, "Bad Samaritans," barely registered at all.

Now other series are in the works, and may be hit or miss. One recent Netflix announcement said siblings Lana and Andy Wachowski, of "The Matrix" fame, are developing a show called "Sense8." Given the Wachowskis' recent track record, that show could go either way.

Still, Netflix appears to have a plan. And as the service blazes its trail, it's certainly worth watching, said McKairnes.

"This is a whole new world," he said. "I wouldn't even know how to describe what failure is yet. I don't know that anybody does in the world of streaming."